1. Claims for Breach of Fiduciary Duty

Transcription

1 IV. ERISA LITIGATION A. Limitation of Actions 1. Claims for Breach of Fiduciary Duty ERISA Section 413 provides a statute of limitations for fiduciary breaches under ERISA consisting of the earlier of (a) six years after the date of the last action which constituted a part of the breach or violation, or in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation or (b) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation. ERISA 413. The statute further provides that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation. Id. In its first opinion construing the fraud and concealment language of Section 413, the Second Circuit, declining to follow the lead of other circuits, held that a plaintiff need not allege additional conduct beyond a breach of duty by fraud to invoke the six-year statute of limitations. See Caputo v. Pfizer, Inc., 267 F.3d 181 (2d Cir. Oct. 9, 2001) (allegation of breach of fiduciary duty by fraud is, by itself, sufficient to trigger the six-year statute of limitations period under the fraud or concealment exception to ERISA Section 413). The plaintiffs in Caputo were long-time employees of Pfizer s Groton, Connecticut plant who were in the process of planning their retirements. Prior to their retirement, Pfizer had offered an early retirement incentive, the Voluntary Separation Option ( VSO ), as an alternative to involuntarily terminating employees of a division of the plant that was being closed. In light of the fact that Pfizer had offered a VSO in the past, the plaintiffs asked many times prior to selecting retirement dates about the possibility of future VSOs being offered. These questions were always answered in the negative. One manager also allegedly told one of the plaintiffs that the VSO was a once-in-a-lifetime package and then told another plaintiff that he would never live long enough to see a golden handshake. Id. at 186. Based on this information, each of the plaintiffs retired between January 1 and June 1, A VSO that would have increased the plaintiffs retirement benefits, had they not retired when they did, was announced on November 11, Id. Approximately four years after they retired, the plaintiffs learned that one of their co-workers had successfully sued Pfizer for breaching its fiduciary duty by not telling him about the possibility of the earlier VSO prior to his retirement. Through the course of the litigation, evidence was presented that Pfizer had intended to offer VSOs in both 1990 and Based on this information, the plaintiffs sued Pfizer in 1996 for breach of fiduciary duty based on Pfizer s misrepresenting its intentions to the plaintiffs in response to their questions regarding the possibility of future VSOs. Id. at 187. The district court granted Pfizer summary judgment on the ground that the plaintiffs were barred from bringing their claims for breach of fiduciary duty by the three-year statute of limitations in ERISA Section 413 because they had actual knowledge of the breach when the VSO was announced in The court also held that the plaintiffs could not qualify for the six-year limitations period under the fraud and concealment exception to Section 413 because the plaintiffs did not plead fraud with the requisite particularity. Id. The Second Circuit reversed because it found that the plaintiffs were entitled to the six-year statute of limitations under Section 413 s fraud or concealment exception to the three year limitations period for breach of fiduciary duty claims. The court noted that six of the circuits that have construed the

2 fraud or concealment exception have held that a plaintiff, to qualify for the six year limitations period, must not only allege a breach of fiduciary duty, but must also allege that the defendant committed either: (1) a self-concealing act -- an act committed during the course of the breach that has the effect of concealing the breach from the plaintiff; or (2) active concealment -- an act distinct from and subsequent to the breach intended to conceal it. Id. at 189 (citing In re Unisys Corp. Retiree Medical Benefit ERISA Litigation, 242 F.3d 497, 503 (3d Cir. March 20, 2001); J. Geils Band Employee Benefit Plan v. Smith Barney, 76 F.3d 1245, 1252 (1st Cir. 1996); Barker v. American Mobil Power Corp., 64 F.3d 1397, (9th Cir. 1995); Larson v. Northrop Corp., 21 F.3d 1164, (D.C. Cir. 1994); Radiology Ctr. v. Stifel Nicolaus & Co., 919 F.2d 1216, 1220 (7th Cir. 1990); Schaefer v. Arkansas Med. Society, 853 F.2d 1487, (8th Cir. 1988)). Relying on the plain language of the statute, the Second Circuit declined to follow those six circuits, and held that an allegation of breach of fiduciary duty by fraud is, by itself, sufficient to trigger the six year statute of limitations period under ERISA Section 413. Id. at 190. The court reasoned that, because fraud and concealment are separate words with distinct meanings, and because Section 413 uses the two words in the disjunctive, each of the words must be given independent significance. The court thus held that Section 413 s reference to fraud or concealment cannot be read to require a plaintiff to allege fraudulent concealment to qualify for the six-year limitations period. Id. Accordingly, an allegation of breach of fiduciary duty by the commission of fraud is sufficient to invoke the six-year statute of limitations period under the fraud or concealment provision of Section 413. Id. The court added, however, it was not dispositive that plaintiffs claims fall under the fraud or concealment exception, since, to obtain the advantage of the six-year statute of limitations, the plaintiffs had to plead fraud with the requisite particularity under Federal Rule of Civil Procedure 9(b). Id. at 191. The Second Circuit agreed with the district court that the plaintiffs had not satisfied this standard. The appellate court, however, found that the district court had erred by refusing to grant the plaintiffs leave to replead. Id. The court in Richard B. Roush, Inc. v. New England Mutual Life Ins. Co., 166 F. Supp. 2d 187 (M.D. Pa. Oct. 16, 2001) (failure to disclose a breach does not amount to concealment for purposes of invoking the six-year statute of limitations under the fraud or concealment exception to ERISA Section 413), relying on the Third Circuit s decision in In re Unisys Corp. Retiree Medical Benefit ERISA Litigation, 242 F.3d 497, 503 (3d Cir. March 20, 2001) ( fraud or concealment provision of ERISA Section 413 applied only if the defendant engaged in conduct beyond the breach itself that ha[d] the effect of concealing the breach from its victims ), cert. denied, 122 S. Ct. 542 (Nov. 13, 2001), granted the defendant partial summary judgment on the grounds that many of the plaintiff s claims were time-barred. The court applied the three-year statute of limitations to plaintiff s breach of fiduciary duty claims because the plaintiff s allegation that the defendant failed to notify it of the breach was not an allegation of concealment. The court thus held that the plaintiff s allegations did not entitle it to the six-year statute of limitations under the fraud or concealment exception to ERISA Section 413. Id. at 202.

3 2. Claims Other Than for Breach of Fiduciary Duty (a) Which Period of Limitations Applies (i) Statutory Limitations Periods The statute of limitations set forth in ERISA Section 413 applies only to claims for breach of fiduciary duty. ERISA does not contain specific statutes of limitations for any other claims which are permissible under ERISA Section 502. Courts generally have held that, where ERISA does not specify a statute of limitations for an ERISA claim, the statute of limitations of the forum state for the most closely analogous action should be applied. The characterization of the essential nature of the ERISA action, however, is a matter of federal law. See, e.g., Nazario Martinez v. Johnson & Johnson Baby Products, Inc., 184 F. Supp. 2d 157, 159 (D. P.R. Jan. 31, 2002). The statute of limitations for the most closely analogous action often differs from state to state. Within the past year, courts considering actions for benefits under ERISA Section 502(a)(1)(B) applied state statutes of limitations ranging from as long as fifteen years to as short as one year. Compare, e.g., Nazario Martinez v. Johnson & Johnson Baby Products, Inc., 184 F. Supp. 2d 157, 159 (D. P.R. Jan. 31, 2002) (Puerto Rico s residual contract statute of limitations of fifteen years applies to actions to recover benefits under ERISA Section 502(a)(1)(B)); with Davis v. Bowman Apple Products Co., 2002 WL , *5 (W.D. Va. Mar. 29, 2002) (Virginia s five-year statue of limitations for contract actions applied to action to recover benefits under ERISA Section 502(a)(1)(B)); and with Hidy v. TIAA Group Long Term Disability Benefits Ins. Policy, 2002 WL , *2 (D. Del. Mar. 19, 2002) (following Third Circuit precedent, applying Delaware s one-year statute of limitations for actions based on certain employment disputes, rather than Delaware s three-year statute of limitations for general contract actions, to claim for benefits under ERISA Section 502(a)(1)(B)). Also Compare Muldoon v. C.J. Muldoon & Sons, 278 F.3d 31 (1st Cir. Jan. 28, 2002) (in action under ERISA Section 510 for allegedly wrongful termination, following the lead of other circuits in holding that ERISA Section 510 claims are most analogous to state law actions for wrongful termination or retaliatory discharge, and applying Massachusetts three-year statute of limitations for tort and contract actions to recover for personal injuries), with Hoodack v. Int l. Business Machines, 202 F. Supp. 2d 109, 113 (S.D.N.Y. Feb. 28, 2002) (in action brought pursuant to ERISA Section 510, applying two-year statute of limitations applied in retaliatory discharge actions under New York Workers Compensation Law). Due to the range of statutes of limitation for the same basic cause of action, counsel representing plaintiffs seeking to file actions under ERISA stating claims other than for breach of fiduciary duty should consider the applicable statutes of limitations in the various states in which jurisdiction would be proper before deciding where to file suit. Choosing a jurisdiction in which an action is time-barred when the applicable statute of limitations has not run in another viable jurisdiction may raise issues of professional responsibility. Counsel representing defendants in non-fiduciary ERISA actions also should be quick to determine the applicable statutes of limitations for the claims at issue, since sometimes the limitations periods are quite short. See, e.g., Hidy, 2002 WL at *2 (Delaware s one-year limitations period for certain employment disputes governed claim for benefits under ERISA); Evertz v. Aspen Med. Group, 2001 WL (D. Minn. Sept. 14, 2001) (claim for additional benefits under ERISA Section 502(a)(1)(B) governed by Minnesota s two-year statute of limitations applicable to contract actions).

4 The determination of the most closely analogous statute of limitations for a benefits claim is not always obvious. For instance, Henglein v. Colt Indus. Operating Corp., 260 F.3d 201 (3d Cir. Aug. 10, 2001) (holding that law of the case required application of Pennsylvania s six-year statute of limitations applicable to contract claims to benefit claims under ERISA), cert. denied, 122 S. Ct (Mar. 25, 2002), reveals disagreement between two district court judges in Pennsylvania as to the statute of limitations applicable to claims of former employees that they were entitled to plant shutdown benefits under an informal ERISA plan. After the former employees sued to recover such benefits, the defendants filed a declaratory judgment action seeking a declaration that an informal benefit plan never existed. In the declaratory judgment action, the district court found that the applicable statute of limitations for the plaintiffs benefits claims was Pennsylvania s six-year statute of limitations applicable to contracts. Id. at 206. After the declaratory action was dismissed, the district court in which the plaintiffs had filed their claims held that the applicable statute of limitations was to be found in Pennsylvania s Wage Payment and Collection Law, which provided that claims for collection of wages, including fringe benefits, must be brought within three years. The Third Circuit, in Henglein, without deciding which statute of limitations actually was most analogous to the claims for benefits, reversed the district court s finding, based on the fact that the court that decided the declaratory judgment action had previously held that the correct statute of limitations was six years. Because the defendants did not appeal the declaratory judgment court s finding, the Court of Appeals reasoned, the six-year statute of limitations was the law of the case. Id. at 206. (ii) Contractual Limitations Periods In addition to considering state law statutes of limitations, practitioners should determine whether the plan documents contain a contractual limitations period and whether any such contractual period is enforceable. Both the length of time and the accrual of contractual limitations periods frequently differ from the applicable state statute of limitations. For instance, in Mogck v. UNUM Life Ins. Co. of Am., 292 F.3d 1025 (9th Cir. June 10, 2002), in determining whether an action for disability benefits was time-barred, the court considered the appropriate application of California s four-year statute of limitations for suits on written contracts and of a three-year limitation contained in the policy at issue. Having found that that the action was filed within California s four-year period, the court focused on the policy s requirement that a legal action could not be started (1) until 60 days after proof of claim has been given; nor (2) more than three years after the time proof of claim is required. Id. at 1028 (emphasis supplied by court). The court nevertheless determined that the three-year period had not run because UNUM had not adequately requested a proof of claim in accordance with the policy s provisions and, thus, had not triggered the running of the limitations period. Id. at Although the Ninth Circuit in Mogck did not question the enforceability of the contractual limitations period, courts have differed as to whether contractual limitations periods shorter than the most analogous state statutes of limitations are enforceable. The Sixth Circuit, at the end of last year, applied a contractual statute of limitations shorter than the most analogous state statute of limitations that otherwise would have been applicable. Santino v. Provident Life and Accident Ins. Co., 276 F.3d 772 (6th Cir. Dec. 20, 2001) (affirming district court s finding that the plaintiff s claim was time-barred under a contractual limitations period shorter than the most analogous state statute of limitations). Noting that the most analogous Michigan statute of limitations in a claim for ERISA plan benefits is the state s six-year breach of contract limitations period, the court added that Michigan courts have held that insurance contracts may contain shorter statutes of limitations. Id. at 776. The

5 plan under which the plaintiff claimed benefits required that a claim be brought within three years of the written proof of loss. The court, thus, applied the three-year limitations period. Id. Both the Seventh and Eleventh Circuits similarly have held that reasonable contractual limitations periods are enforceable in actions brought under ERISA and that such periods may be shorter than the borrowed statute of limitations that otherwise would apply. See, e.g., Doe v. Blue Cross & Blue Shield United of Wisconsin, 112 F.3d 869, 875 (7th Cir. Apr. 29, 1997) (contractual limitations period of 39 months from the date of the provision of services for which benefits were sought was reasonable and, thus, enforceable); Northlake Regional Medical Center v. Waffle House System Employee Benefit Plan, 160 F.3d 1301 (11th Cir. Nov. 16, 1998) (relying on and agreeing with Doe; finding the 90-day limitations period set forth in the plan at issue to be reasonable, and thus enforceable, in the context of the case (the record did not suggest that the short limitations period was a subterfuge to prevent lawsuits, given that that plan was not funded by a third party; the short limitations period was commensurate with other Plan provisions... designed to process claims with dispatch; and the limitations period did not begin to run until after the exhaustion of administrative remedies, which process took ten months); cautioning that a 90-day limitations period may not always be reasonable and that a shorter limitations period may never be reasonable). See also Yuhas v. Provident Life and Casualty Ins. Co., 162 F. Supp. 2d 227, 231 (S.D.N.Y. Aug. 2, 2001) (plaintiff s claim time-barred because the requirement in the LTD contract that lawsuits be brought within three years provided the applicable statute of limitations instead of the six-year statute of limitations applicable to contract actions brought in New York); Alcorn v. Raytheon Co., 175 F. Supp. 2d 117, (D. Mass. Nov. 21, 2001) (following Doe and applying the Northlake factors, the court found the contractual requirement that claims be brought within three years was reasonable and that the six-year statute of limitations applicable to benefit claims brought in Massachusetts did not apply). Bucking this trend, a district court in the Eighth Circuit last year held that a contractual limitations period that was shorter than the most analogous state statute of limitations was not enforceable. Wineinger v. United Healthcare Ins. Co., 2001 U.S. Dist. LEXIS 3369, *7-8 (D. Neb. Mar. 13, 2001) ( defendant could not shorten the five-year Nebraska statute of limitations in its... policy ). The court relied in part on a Nebraska statute providing that an insurance policy cannot limit the time within which an action may be brought to less than the time prescribed by the state statute of limitations. Id. at *8. Not only should attorneys representing litigants consider contractual limitations periods, but practitioners involved in plan drafting should consider the potential benefits of including such a provision in a plan. (b) When the Statute of Limitations Begins to Run Although courts look to state law for the applicable statute of limitations, federal law governs the issue of when the claim accrues so as to start the running of the statute of limitations. See Evertz v. Aspen Med. Group, 2001 WL , *1 (D. Minn. Sept., 14, 2001) (federal law controls the question of claim accrual ). (i) Claims for Benefits Generally, a claim for benefits under ERISA Section 502(a)(1)(B) accrues when a benefits clam has been made and formally denied. Davis v. Bowman Applie Products Co., 2002 WL , *5 (W.D. Va. Mar. 29, 2002). In cases in which a formal denial is lacking, courts tend to look to when the plaintiffs should have known that they were not receiving benefits to which they believed they